attaches to the shares, by whomsoever they may be held. This holds good even in the case of such corporations as are formed under the Letters Patent Acts or by registration, without conferring on their members the privileges of limited liability; for notwithstanding of this, they are still corporations. law companies. As regards common law companies, which wear the external in common appearance of corporations, from their being managed by directors and having a capital divided into shares transferable at the will of their owners, the question whether an incoming shareholder incurs liability for company obligations previously contracted, is attended with considerable difficulty. With respect to such liabilities as may have been incurred by the promoters before the partnership relation was formed by the company being brought into existence, there can be no doubt that it is in a similar position with corporations and ordinary firms,—that is to say, the future members can never be held liable when the company, after formation, has not adopted the obligations of its promoters (a). But the question very different with regard to the liability of persons joining the company subsequent to its formation for obligations which it has de facto incurred. is According to the law of England, a distinction appears to have English law. been taken between the liability of shareholders among themselves, and their liability as to creditors. The shareholders have been held liable for all past obligations in a question with each other, the mere fact of their purchasing shares being taken as evidence of their agreement to incur such liability; but the ordinary partnership rules have been held to apply in questions with the public (). It is very questionable whether these views can be taken as in Scottish law. conformity with the law of Scotland. Associations of the kind now under consideration seem in contemplation of our law to be somewhat more than mere firms, though they are not corporations, and to stand as it were midway between the two. They cannot, indeed, appear judicially by a descriptive name without joinder of partners, but the quasi persona appears to be much more developed in their case than in that of private firms; and no countenance has ever been (a) See 'Promoters,' supra. (b) Cape's Exs., 2 De G. M. and G. 562; Thomas v. Clark, 18 C. B. 662. Amalgamation. given to the notion, that the resignation of one member dissolves the concern, or that an increase of membership creates a new company. On the contrary, it is one of the distinguishing characteristics of such associations, that their shares may be bought and sold like those of incorporated companies. It would therefore seem that the quasi persona is to many effects possessed of continuous existence, however much the membership may fluctuate, and is capable of incurring and sustaining obligations irrespective altogether of the members of whom for the time being it may be composed. Now, if this be so, it seems to follow that all incoming shareholders become de facto liable for its existing obligations at whatever period they may have been incurred, because the quasi persona is the real and subsisting debtor, and they are its guarantees or sureties. Indeed, it may be said that all persons entering such associations are bound to know this, just as they are bound to know that the executive management of such companies is entrusted to directors, and not to the members generally; so that the mere fact of their entering the concern may be said to imply their consent to become liable for its existing obligations. It may indeed be argued, that in this view partners disposing of their shares ought ipso facto to be released from their liabilities by delegation to their disponees; but though this may in old times have been law in Scotland, the fact that it is not so now does not affect the question, since a man may always become liable for an obligation in which there are previous obligants without releasing any of their number. That the doctrine here stated is law in Scotland, is strongly indicated by the fact that it is generally so understood, and seems to have been universally acted upon in practice; indeed, no case seems ever to have occurred in which a defence founded on the English rules has even been so much as stated where incoming shareholders have been sued for company obligations (a). When two companies amalgamate, the liabilities of each for the debts and obligations previously contracted by the other will fall to be regulated by the same rules as would apply in the case of two (a) See Maclean v. Rose, supra ; National Exchange Co. v. Drew and Dick, 1860, 23 D. 1; Wilson v. Bruce, 1853, 16 D. 171; Inglis v. Lumsden, 1859, 21 D. 192; Liquidators of Western Bank v. Douglas, 1860, 22 D. 447; Dobbie v. Johnstone, 1859, 21 D. 624. individuals forming a partnership. This appears to have been decided in England (a), and there seems no reason to doubt that it would be held law in this country (b). In like manner, when the proper person of a corporation, or the quasi person of a firm, becomes the partner of another company, the same rules seem to apply. (a) Lindley, Supp. 75. Bank, 1860, 22 D. 540; Buchanan v. (b) See Western Bank v. Ayrshire Lennox, 1838, 16 S. 824. U Ambiguity of expression. Responsibility for future acts. Liability for existing obligations. CHAPTER XVII. CONTINUANCE AND EXTINCTION OF LIABILITY OF PARTNERS, THE expresssion, liability of partners for company obligations, is ambiguous. It may mean one of two things, and it may mean both. It may mean, first, that liability which attaches to every partner for company obligations already incurred; and it may mean, secondly, the liability which he, once being a partner, may retain, to be made responsible for obligations to be incurred by the company hereafter. In other words, it may mean responsibility for the past, or liability to be made responsible for the future. Again, it is sometimes used as a compendious phrase to cover both meanings, as in such phrases as 'limited' and 'unlimited liability.' The distinction, however, is important; and a disregard of it has often been productive of much confusion of thought. The liability to be made responsible for future acts begins as soon as the partnership relation is constituted: it terminates, as regards the socii, by the severance of the partnership relation, unless for purposes of winding up; but as regards the public, it only ceases when due notification has been made that the partnership relation is brought to an end. On the other hand, the liability for past engagements survives the severance of the partnership relation, and as regards the public terminates only by implement or satisfaction; while, in a question with the socii, it may be brought to an end by arrangement, even before the company obligation has been extinguished. These observations of course apply only to partnerships and unincorporated companies. In the case of bodies incorporated by charter, special act, or registration, different rules apply, which will be afterwards considered. In prosecuting our inquiries into this branch of the subject, we shall, in accordance with the distinction above explained, consider first the duration and termination of a partner's liability for company obligations already incurred, and then proceed to consider a partner's liability to be made responsible for future company obligations. TERMINATION OF LIABILITY OF PARTNERS FOR COMPANY When a firm or company unincorporate has once incurred an obligation to the public, each of the partners becomes, as we have already seen, liable to the utmost extent of his means and estate for its fulfilment; and until the obligation has been extinguished or discharged as against the concern, no arrangement to which the creditor has not been a party will have the smallest effect to abate or diminish this liability. Thus a person may retire from the concern with the consent of all the other partners, and he may duly notify this fact to the public; he may put into the hands of the remaining partners who continue the business, sufficient means to pay all the company debts, and he may take them bound to pay within a specified term; he may also take a full discharge from them of all his liabilities as a partner; yet none of these acts, nor all of them combined, will in the least degree release him from the claims of a creditor who has not assented to or homologated the arrangement (a). From this it follows that there are only two ways in which a partner can get rid of his liability for obligations once incurred by a company of which he is or was a member. The first of these is by the debt being extinguished as against the company; and the second is, by virtue of some arrangement to which the company creditor is a party. We shall consider these two modes more in detail. This liability guished in two can be extin ways only. 1. A partner is released when the obligation is extinguished as By extinction against the firm. This rule may be said to be of universal application; for it depends on, and is a necessary consequence of, the well-known doctrine, that a release to a principal is a release to his sureties. It admits, however, of one exception. The creditor may release the company on condition of receiving the partner as sole debtor, by (a) Milliken v. Love, 1803, Hume 758; Walker v. Davidson, 1821, 1 S. 754; Mathison v. Fraser, 1820, Hume 21. of company obligation. |